What is Capital Gains Yield?
Capital gains yield is a measure of the return on an investment that is derived solely from an increase in the asset’s price over time. This type of return is distinct from other types of investment returns, such as dividend income or interest income, which are paid out regularly and do not depend on changes in the asset’s price.
Capital gains yield is calculated by dividing the change in the price of an asset by its original purchase price, and expressing the result as a percentage. For example, if an investor buys a share of stock for $100 and sells it for $120, the capital gains yield would be 20% ($20 gain divided by $100 initial cost).
Why it’s important?
It’s important to note that capital gains yield is realized only when an investor sells an asset for a profit. If an investor holds onto an asset that has increased in value but does not sell it, the capital gains yield is considered unrealized.
Additionally, it’s important to factor in taxes when considering capital gains yield. In many countries, capital gains are subject to tax, which can significantly reduce an investor’s overall return. The amount of tax owed on capital gains can vary depending on the jurisdiction, the length of time the asset was held, and other factors.
Overall, capital gains yield is an important consideration for investors who are looking to profit from changes in the prices of their assets. By understanding how capital gains yield is calculated and how it affects their overall investment return, investors can make more informed decisions about buying and selling their assets.